The recent decision by the UK arm of Mercedes-Benz to reduce the number of dealerships by 40 percent seems likely to end in court, AutoWired reports. It says that the Mercedes-Benz dealer council will meet next week to discuss compensation.

"Who knows where that will lead?" a dealer told AutoWired, "but the courts would seem a likely place. Most of us have been gagged from talking publicly since being told before Christmas that the franchises would be terminated."

AutoWired says that UK dealers were notified before Christmas that all franchises would be terminated and that only two-thirds would be renewed.

At that time, William Jacks Plc, was candidly informed that its franchises would not be renewed. DaimlerChrysler reportedly said that a decision on which Mercedes franchises will be renewed will not be made until the end of January.

"There's a lot at stake, " a UK Mercedes dealer told AutoWired.

"Like any modern franchise we have invested heavily, especially in property, and our accountants will have to put a figure on fair compensation.

"Those dealers in the major cities will probably have their franchises renewed [but] it is my view that DaimlerChrysler will be making a bid to buy them out."

In November, DaimlerChrysler emerged as a surprise buyer of seven Lex Autosales sites. The company paid £17.95 million ($US27 million) for the sites which were sold by the giant car retailing group in October when it decided to stop selling used cars because of 'unacceptable losses'.

According to AutoWired, DaimlerChrysler UK announced that it would re-brand the used car operations under the Mercedes name. It said the launch of the new integrated used car sales operation 'will sell used cars direct from the manufacturer to the customer'.